REVENUE AND CONTRACT COSTS |
3 Months Ended | ||||||||||||||||||||||||||||||
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Mar. 31, 2017 | |||||||||||||||||||||||||||||||
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| REVENUE AND CONTRACT COSTS | REVENUE AND CONTRACT COSTS The Company uses the percentage-of-completion accounting method for fabrication contracts. Revenue from fixed-price or unit rate contracts is recognized on the percentage-of-completion method, computed by the efforts-expended method using the percentage of labor hours incurred as compared to estimated total labor hours to complete each contract. This progress percentage is applied to our estimate of total anticipated gross profit for each contract to determine gross profit earned to date. Revenue recognized in a period for a contract is the amount of gross profit recognized for that period plus labor costs and pass-through costs incurred on the contract during the period. We define pass-through costs as material, freight, equipment rental, and sub-contractor services that are included in the direct costs of revenue associated with projects. Consequently, pass-through costs are
included in revenue but have no impact on the gross profit realized for that particular period. Our pass-through costs as a percentage of revenue for each period presented were as follows:
Contracts in progress at March 31, 2017, was $30.4 million with $22.9 relating to one major customer. Advance billings on contracts at March 31, 2017, was $4.8 million and included advances of $3.8 million from two major customers.
Revenue and gross profit on contracts can be significantly affected by change orders and claims that may not be resolved until the later stages of the contract or after the contract has been completed and delivery occurs. At March 31, 2017, we included no amounts in revenue related to change orders on projects which have been approved as to scope but not price. During the three months ended March 31, 2016, we recorded a loss of $488,000 for a single customer related to revenue on change orders recognized in prior periods that were not recovered in our final settlement with the customer.
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